Why Is the GOP Suddenly Turning Against College?

By James Kwak

Rick Santorum called universities "indoctrination mills." Mitt Romney told a student not to expect any government help if he picks an expensive school. How did it come to this?

Reuters

Republican presidential candidates have aimed their guns at higher education. This assault was highlighted by Rick Santorum's fantastical claim that colleges and universities are "indoctrination mills." But perhaps more disturbing is the ever-sober Mitt Romney's advice to high school seniors considering college: shop around, try to save money, and don't count on government help. In other words, you're on your own.

In this election, we expect Santorum to represent the reactionary wing of the fourth century. But Romney is supposed to be the experienced businessman who knows how to get America back to work. Since when does the supposed party of business not care about the educational level of the American workforce? Remember, George H.W. Bush once claimed that he would be the "education president." His son made education reform his main domestic initiative (other than tax cuts) until September 11 scrambled his presidency.

Paul Krugman argues that Republicans prefer tax cuts to education for political reasons: Their goal to preserve upper-class prosperity comes at the expense of heightened middle-class insecurity. While this is probably true, I think there is more to it. Today, Republicans are turning their backs on higher education because of two historical trends. One is globalization. The other is the anti-tax revolution.

Imagine for a moment that the American political system is controlled by rich people. (That shouldn't be too hard.) In the mid-twentieth century, the United States had by far the largest economy in the world. American companies located most of their operations domestically; foreign direct investment was relatively difficult; and global securities markets were relatively undeveloped, making it hard to invest in foreign countries.

For these reasons, if American elites wanted to make more money, they needed American companies to become more profitable. Since American companies relied on American workers, they needed those workers to become more productive. In that situation, it made sense for the upper class to invest in education for the masses (via taxes and government spending on public education) so they could have a more productive workforce. If, instead, they took all their money and built huge houses in the Hamptons with it, the companies they owned (directly or indirectly) would grow slowly and become uncompetitive.

Today, however, we live in a much more globalized world. Large American companies locate much of their operations overseas and can draw on talented labor all around the world, essentially free-riding off of other countries' educational systems--many of which are at least the equal of our own. We like to think manufacturing has shifted to China because of cheap labor, but it's also because only in China can you hire 8,700 engineers in 15 days. This means that American companies are far less dependent on the American workforce than they were half a century ago.

At the same time, economic development around the world has created many new investment opportunities for rich Americans, and the increasing depth and liquidity of foreign securities markets makes it easier than ever to invest in them. If you think that American companies will lose out to competitors in countries with better education, you can simply buy stock in those competitors--which is much easier than trying to improve our own educational system.

The other historical trend is the anti-tax revolution, which I discuss at length with Simon Johnson in our new book White House Burning. In the 1970s and into the 1980s, the Republican establishment favored balanced budgets, which it saw as essential to controlling inflation and creating a business-friendly environment. The 1970s, however, saw the emergence of two important anti-tax movements: the "populist" taxpayer revolution symbolized by Proposition 13 in California and the doctrine of supply-side economics championed by the editorial page of The Wall Street Journal.

This created a civil war within the Republican Party. Moderates such as Bob Dole supported a series of tax increases that partially reversed President Reagan's huge 1981 tax cut. But the 1980s also saw the emergence of Newt Gingrich as the leader of the conservative opposition, and anger at President Bush's 1990 tax increase gave the conservatives control of the party. The 1994 elections marked the victory not only of Republicans over Democrats, but also of anti-tax Republicans over balanced-budget Republicans, and the anti-tax orthodoxy has only gotten stronger since then.

What does this mean for America today? Again, imagine the country is controlled by rich people. On the one hand, they want their companies to make more money, but those companies are no longer reliant on American workers, so they have little incentive to invest in education. On the other hand, as rich people, they benefit the most from lower taxes. Between better education and a more skilled workforce or lower taxes and more money in their offshore bank accounts, the choice is clear: lower taxes. And the modern Republican Party is the perfect vehicle to cut taxes wherever possible.

According to research by Claudia Goldin and Lawrence Katz, the broad expansion of secondary education was a key factor in the United States' rise to economic preeminence in the twentieth century and also in rising wages for the middle class. I doubt, however, that American political elites increased access to education simply out of altruism. Instead, it was in their own interests as captains of industry.

Today those elites have realized that they can maximize wealth for themselves and their grandchildren by cutting their own taxes (especially taxes on investment income and the estate tax), letting public education deteriorate, and either hiring workers overseas or investing in overseas assets. For all Mitt Romney's talk of patriotism, when you have hundreds of millions of dollars invested all around the world, the health of the American economy is pretty irrelevant to your family fortune. Most Americans can't say the same.